India faces an acute power shortage. Even states like Maharashtra, which usually boasts of surplus power, is reeling under an acute shortage. Not to talk about the small cities and towns like Bhagalpur, Rajkot, Chandigarh, Kochi, Pune, etc. This situation has led to reduction in industrial production, which is expected to go down further. The deficit and poor quality of power has compelled homes, organisations and industries to depend more and more on power backup devices. The scare of power cuts has begun to haunt users not only in metropolitan cities like Mumbai, Chennai, Delhi and Kolkata, but also in small cities and towns. People have started buying UPS and inverters anticipating power cuts as nothing before. “Consumption of UPS has been growing constantly and we expect the demand to grow further in the next few years,” says R Chellappan, managing director, Numeric Power Systems.
By Srabani Sen
Monday, December 05, 2011: With GDP growth predicted to fairly traipse along at 8 per cent over this decade, India is set to reap the benefits of rapid development. And the good news is that this time round, the cheer is likely to spread over a wider geographical area covering smaller cities and towns. A variety of businesses—retail, outsourcing, IT, BPO, R&D and manufacturing units—are eyeing the tier II and III cities in India as highly attractive destinations.
Growth penetration into tier II and III cities, along with the rise of IT/ITES sector, has led to growing sophistication and increased dependence on machines and automation. This development has forced industries like healthcare, pharmaceuticals, hospitality and telecom to depend on an assured supply of electricity to function unhindered. As a result, most of the development is expected in the tier II and III cities, which is really where the teeming Indian middle class lives. Be it in terms of education—several are home to some good quality universities that produce thousands of graduates and engineers; or in terms of employment—with outsourcing, IT and retail gunning for these smaller cities in search of space, customers or employees. Government is also taking an active interest in promoting these cities as investment options to decongest tier I cities and for more uniform development.
Demand shoots up
Little wonder that the demand for UPS and inverter has shot up in tier II and III cities, serving as a key factor in driving the growth of the Indian UPS market. Realising the vast potential in these cities, manufacturers and vendor of UPS and inverters are penetrating into the tier II and III cities in order to sustain in a highly volatile competitive market. It has, therefore, become imperative for them to look for greener pastures. “We are tapping the tier II and III market to increase out revenue. It has immense potential,” says Kapil Goel, director, Nuline.
Till recently, market growth was chiefly coming from major cities like Delhi, Mumbai, Bengaluru, Hyderabad and Kolkata. Things seem to have changed suddenly. After capitalising on the major metros, industry players are now moving on to the B and C class cities that are untapped. “In India, the major cities like Mumbai, Delhi, Kolkata, Chennai and Bengaluru have been the largest markets for power products. However, there has been a shift towards B and C class cities such as Pune, Chandigarh, Lucknow, Hyderabad, Jaipur,” says Yogesh Dua, managing director, upsINVERTER.com.
“Tier II and III cities are witnessing tremendous growth and change in lifestyle patterns, giving rise to a growing consumption which we would like to capitalise on. Consumer culture, spurred by rapid economic growth, is spreading to these areas as well. We are concentrating on these cities as the potential is huge and there is a growing demand,” states Deepak Sharma, country business manager, UPS, Delta Energy Systems.
“The purchasing power in non-metro India is on a steady rise and has resulted in the growth of this market. It has been growing at 3-4 per cent per annum adding more than 1 million new consumers every year and now accounts for close to 50 per cent of volume consumption. Not only this, the consumer in tier II and III cities is open to new ideas and loves to experiment since they do not have any preconceived notions. Also this consumer is far more loyal since they have not yet witnessed choices,” Sharma adds.
Delta currently focuses on Man-galore, Mysore, Salem, Trichy, Vijaywada, Vizag, Surat, Rajkot, Jammu, Meerut, Lucknow and Ludhiana for its business in the tier II and III category. “We see potential growth in south and west India that is quickly catching up with the new trends,” he adds.
What’s driving the growth
There is tremendous untapped potential in various verticals in B and C class cities. With the PC usage increasing in these cities, the market demand for inverter and UPS has increased. Vendors are, therefore, increasingly focusing on these cities to counter their eroding market share in the metros and A class cities. The sale of desktops in these small cities are more and power situation is worse compared to the large cities.
Overall IT spends have increased in tier II and III cities, resulting in a greater number of PCs. Attach ratios in home segment have increased substantially pushing up the overall attach ratios. “In smaller cities the attach ratio of UPS to PCs sold is almost 100 per cent,” explains Chellappan. Seconds Sharma, “Huge demand from SOHO, SMB/SMEs, government sector, BFSI and educational segment are driving the demand for UPS in the sub 5 kVA UPS category. Demand from SOHO, SMB/SMEs is due to the increased PC penetration, investment and upgradation of IT infrastructure. There has been a gradual shift from a small standalone UPS system to an entry level centralised UPS system.”
The 2-5kVA UPS mostly bought by SMBs have seen the highest value growth over the last couple of years. Several SMBs are increasingly becoming network dependent. Many have implemented ERP increasing the importance of uptime. Delta offers online UPS in rating of 1kVA, 2kVA and 3 kVA in the sub 5 kVA categories with each product line suited for a particular application.
“Delta E Series UPS are meant for extended battery autonomy applications up to 24 hours as required in BFSI segment, for example for ATM applications. Delta N Series UPS is designed for in-built battery option where space is a constraint. However, in case the battery option is not exercised, the same space can be used to accommodate an add-on charger to prolong the backup requirements. Delta R Series UPS is a 2-in-1 form factored to be used as rack mount as well as in tower configuration. This UPS finds applications for powering IT racks for network equipment/ server,” explains Sharma.
Sectors where the demand is
Increased penetration of PCs in smaller cities and need for reliable power to run them have been the major drivers for UPS growth. Bundling of UPS with PCs has become mandatory. Home and SOHO segment has been the other star segment that have provided for significant volume growth. While this segment contributes nearly 50 per cent to the volume, its contribution to overall value of the UPS market is even better. Within the home and SOHO segment it is the tier II and III cities that are witnessing maximum growth.
According to MAIT, the top eight cities accounted for 46 per cent of UPS consumption, while smaller towns and cities accounted for 54 per cent of total sales.
“Inverters are predominantly home and SOHO segment products and they hold the key for maximum growth. Also, segments like retail counters, institutions, hospitals, hotels and SMEs go for the mid-range inverters,” explicits Chellappan. The same reasons can be recounted for high growth opportunities in the BFSI segment. The increasing computerisation of the banking services has also increased the business opportunity for backup power supply devices. With banks focusing on expanding their retail presence and ATM networks, and companies like Reliance planning to open thousands of franchisees, this market would explode.
V T Siva, managing director, Time Online UPS, is bullish about the government segment, “I expect the government to spend a lot on power solutions. Several e-governance projects are being implemented which would fuel demand for our products.”
According to Y B Suresh, managing director, Total Power Conditioners (TPC), the BPO sector is a major growth driver of the UPS market in B and C class cities. “BPOs are opening centres at cities like Bhopal, Indore, Gwalior, Chandigarh, Ahmedabad and, therefore, the demand for en-terprise-scale UPS systems is trickling in from these cities too. We must not forget the vertical pockets like Kanpur, Ludhiana, etc, which have exhibited heavy industrialisation.”
The mushrooming of malls, food joints and even hotels in tier II and III cities is also fueling demand for UPS systems in these cities. No shop can lag behind in terms of customer footfalls and, therefore, they arrange for backup of their entire power needs. They use applications for inventory management, billing, etc.
Many manufactures and channel partners are spreading their service network in tier II and III cities and are having a joy ride. “However, there’s need to educate the overall market, irrespective of verticals, about the UPS’ applications in various fields. This is not only key for the IT industry but other industries as well,” feel manufacturers.
Companies are adopting different strategies to cater to the needs of these cities better. Informs Sharma, “We conduct channel meets and end customer meets in these cities to understand both the customer and channel requirements. We are expecting 30 per cent of our business to come from these cities.”
Delta’s ‘go-to-market’ strategy involves promoting its line interactive UPS series through a national distributor and its VAR/reseller network. The low and medium range of online UPS is promoted through our exclusive business partners who act as power solution providers to the end customer. The higher rating of online UPS is promoted directly by Delta to provide effective and efficient services to its customers.
“Since service is the main differentiator for customers in these cities, we are appointing authorised sales and service partners in these regions. This will add to customer experience with easy accessibility for all sales and service related queries,” adds Sharma.
Most vendors have adopted a 50:50 mix of both IT and non-IT channels to push their power backup devices. “We have realised there are a lot of consumers in the upcountry market and feel the need to increase our reach in more and more B and C class cities,” says Suresh. “We are focusing more on tier II and III cities as they hold the key for any business success. Unpredictable power conditions in these cities have become the key-enabler. Our strong distribution network has established our products in tier II and III cities and logically we are now planning to get into the tier IV cities with our channel aggressive plan and end user schemes, to address the small resellers and end clients,” explains Chellappan.
upsINVERTER.com generates 80 per cent of its revenue from tier II and III cities. “Revenue generation from any one particular city is not consistence. It varies as per the power condition of the city. Once in three to four years, almost every city has given its best potential,” states Dua.
Realising the potential of these small cities, first timers like Time Online UPS are also trying their luck. “We are yet to invest much in these cities as we operate through small dealers. But we need to push them to push our products. However, we are expecting good response as the demand is clearly increasing,” says Siva.
TPC and Nuline uses dealers and distributors to push their products in the tier II and tier III cities. “We are trying to decrease the number of layers between us and the buyers to decrease the cost and increase the margin,” says Suresh. “We have not invested much yet in these small cites, but we have started making products particularly for the markets there as power fluctuation is very high in these areas,” he adds.
Nuline has not started investing in these cities. However, it does maximum business in Faridabad by supplying power conditioning devices in schools and colleges. “Our distributors in these cities device strategies according to the market scenario. Even the discount schemes are designed by them and we support them wherever possible,” says Goel.
Doing business in these greener pastures are, however, not without challenges. “Price cutting is a major challenge as customers in these cities are still not ready to shell out more for a good quality products. Other than that we are facing competition from the Chinese manufacturers who are dumping their products in these cities as it is easy to manipulate people there,” adds Siva.
Sharma feels logistics and providing service to the customers are the two major challenges in these cities. “We are appointing ASPs in these regions who would stock, sell and service the products in these regions.” In the future these cities are going to be the markets to watch for.
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine